McLaughlin v. Schenk , 731 Utah Adv. Rep. 27 ( 2013 )

This opinion is subject to revision before final
publication in the Pacific Reporter
2013 UT 20IN THE
SUPREME COURT OF THE STATE OF UTAH
SAMUEL R. MCLAUGHLIN and JOHN DOES 1-10,
Plaintiffs and Appellant,
v.
GREG SCHENK; Estate of BOYD SCHENK; ANNA SCHENK;
COOKIETREE, INC.; JOHN DOES 1-10,
Defendants and Appellees.
No. 20111109
Filed April 5, 2013
Third District, Salt Lake
The Honorable Anthony B. Quinn
No. 040924997
Attorneys:
Lincoln W. Hobbs, Margaret H. Olson, Salt Lake City,
for appellant
Matthew M. Durham, Justin B. Palmer, Salt Lake City, for
appellees Cookietree, Inc. and Greg Schenk
Richard D. Flint, Salt Lake City, for appellees Anna Schenk and
Estate of Boyd Schenk
JUSTICE PARRISH authored the opinion of the Court, in which
CHIEF JUSTICE DURRANT, ASSOCIATE CHIEF JUSTICE NEHRING,
JUSTICE DURHAM, and JUSTICE LEE joined.
JUSTICE PARRISH, opinion of the Court:
INTRODUCTION
¶1 This case involves an appeal from an entry of summary
judgment in a case that we remanded in 2009. In 1999, Greg Schenk
purchased shares in Cookietree, Inc. (Cookietree), in violation of a
1991 Shareholder Agreement. In 2005, Cookietree’s Board of
Directors (Board), including Schenk, voted to waive the provisions
of the 1991 Shareholder Agreement that precluded the stock
purchase. Around that same time, shareholders representing nearly
90 percent of Cookietree’s shares, again including Schenk, signed
consent and waiver forms ratifying the 1991 stock purchase (collec-
tively, the 2005 Waivers). Samuel McLaughlin, a minority share-
MCLAUGHLIN v. SCHENK
Opinion of the Court
holder, brought suit challenging the stock purchase, and the district
court granted Cookietree and Schenk’s motion for summary
judgment. On appeal, we held that the 2005 Waivers were tainted
by Schenk’s participation in the votes and remanded for a determi-
nation of whether the 2005 Waivers were fair. McLaughlin v. Schenk,
2009 UT 64, 220 P.3d 146 (McLaughlin I).
¶2 Following our remand, Cookietree took several corporate
actions that it intended to have “the same purpose and effect of a
fairness hearing: to resolve the nontransaction conflict of interest that
tainted the 2005 Waivers” (2009 Ratifications). Specifically, in 2009,
the Board voted to waive the stock transfer provisions in the 1991
Shareholder Agreement and to ratify the 2005 Waivers. And in 2010,
the shareholders similarly voted to waive the stock transfer provi-
sions and to ratify the 2005 Waivers.
¶3 The district court thereafter held that McLaughlin was
still entitled to a fairness hearing, notwithstanding Cookietree’s
attempts to resolve the conflict of interest. But when the case was
reassigned to another district court judge, the replacement judge
disagreed with the determination that a fairness hearing was
necessary. He ruled that the post-remand corporate actions resolved
any issue concerning the conflict of interest that had tainted the 2005
Waivers and entered summary judgment in favor of Cookietree and
Schenk. McLaughlin appeals to this court, raising several issues for
our consideration.
¶4 The first issue is whether the district court violated the
law of the case doctrine when it ruled that it could consider options
other than a fairness hearing to resolve the nontransaction conflict
of interest situation. The second issue is whether the holding of
McLaughlin I that shareholders in closely held corporations owe each
other fiduciary duties has been superseded by statute and whether
the statute is dispositive in this case. The third issue is whether the
district court violated our mandate in McLaughlin I by declining to
hold a fairness hearing. The final issue is whether the post-remand
corporate action mooted the need for a fairness hearing, thereby
mandating summary judgment in favor of Schenk and Cookietree.
BACKGROUND
¶5 Cookietree is a Utah corporation that was established in
1981. McLaughlin v. Schenk, 2009 UT 64, ¶ 3, 220 P.3d 146. Schenk is
the majority shareholder and President of the Board. Id. ¶¶ 3, 6.
McLaughlin is a minority shareholder and former executive
employee. Id. ¶¶ 3, 9.
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¶6 In 1999, the Estate of Boyd Schenk sold 545,200 shares of
Cookietree common stock to Greg Schenk. “This transfer was not
recorded in Cookietree’s minutes or written records, and a right of
first refusal was not provided to the corporation or the other
shareholders,” in violation of the 1991 Shareholder Agreement. Id.
¶7 In 2004, McLaughlin filed suit against Schenk and
Cookietree, alleging that the stock transfer violated the 1991
Shareholder Agreement. In 2005, Cookietree’s Board and sharehold-
ers, including Schenk, who acted in both capacities, passed the 2005
Waivers, which purported to waive the provisions of the 1991
Shareholder Agreement that precluded the stock transfer.
Cookietree and Schenk then successfully moved to dispose of
McLaughlin’s claims on summary judgment. Id.
¶8 McLaughlin appealed to this court. Id. Although we
held that the 2005 Waivers did not violate Cookietree’s corporate
governance documents, we held that the 2005 Waivers “suffer[ed]
from . . . [a] lack of probity and fair dealing.” Id., ¶ 36. We reasoned
that shareholders in closely held corporations owed fiduciary duties
to other shareholders and extended the conflict of interest provisions
of section 851 of the Utah Revised Business Corporation Act
(Corporation Act), UTAH CODE §§ 16-10a-101 et seq., to
“nontransaction related conflicts” of interest such as those at issue
in this case. Id. ¶ 37. After concluding that Schenk’s participation in
both the Board waiver and the shareholder waiver was tainted by a
conflict of interest, we reversed the summary judgment that had
been based on these waivers. “We therefore remand[ed] for a
determination of whether the [2005] [W]aivers were fair within the
meaning of Utah Code section 16-10a-851, which is a fact-intensive
inquiry focusing on whether the waivers were beneficial to the
corporation and the shareholders and whether they satisfied the
standard of fair dealing.” Id. ¶ 38.
¶9 Following our remand, on December 18, 2009, all three of
Cookietree’s Board members met. They included Schenk, Harold
Rosemann, and David Rudd. Schenk and Rosemann disqualified
themselves from voting due to a conflict of interest. The one
remaining Board member, Rudd, voted to ratify the 2005 Waivers
and “presently waived the stock transfer provisions in the Share-
holders Agreement.” All three Board members then voted to ratify
the actions of Rudd.
¶10 Rudd then authorized two proposals to be submitted to
the shareholders for vote at the upcoming annual meeting on
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Opinion of the Court
January 6, 2010. Proposal One was a present waiver of the stock
transfer provisions. Proposal Two was ratification of the 2005
Waivers and Proposal One.
¶11 The 1991 Shareholder Agreement required that two-
thirds of the shares, excluding those shares owned by the controlling
shareholder, vote to waive the Shareholder’s Agreement’s restriction
on share transfers. Therefore, Schenk voted on Proposal One
because his vote was necessary for waiver under the Shareholder
Agreement. However, because of Schenk’s conflict of interest, the
vote on Proposal One was tallied in two different ways: one tally
including Schenk’s shares other than the shares at issue in the 1999
Stock Sale; the other tally excluding all of his shares. When Schenk’s
shares were included in the tally, 3,168,200 shares were voted in
favor of Proposal One and 400,000 shares (owned by McLaughlin
and his wife) were voted against Proposal One. When Schenk’s
shares were excluded from the tally, 987,000 shares were voted in
favor of Proposal One and 400,000 shares were voted against.
¶12 Proposal Two to ratify the 2005 Shareholders Waiver was
voted for by a majority of the shareholders, not including Schenk.
Specifically, 987,000 shares were voted in favor of Proposal Two and
400,000 shares were voted against.
¶13 On January 15, 2010, McLaughlin filed a Motion for
Partial Summary Judgment and/or Declaratory Judgment Declaring
the Invalidity of Corporate Actions. He argued “that the corporate
actions taken on December 18, 2009 and January 6, 2010 were
improperly undertaken for the specific purpose of circumventing the
remand directive.” In response, Cookietree and Schenk argued that
our remand instruction had only “remanded for further action to
resolve the conflict of interest,” and asked the district court to
recognize that the December 18, 2009 and January 6, 2010 corporate
actions effectively ratified the 2005 Waivers. The district court
disagreed with this reasoning and granted McLaughlin’s motion. It
held that McLaughlin was “entitled to the fairness hearing identified
by the Supreme Court.” Schenk and Cookietree then petitioned this
court for interlocutory appeal, which was denied.
¶14 At a rule 16 conference set for the purpose of scheduling
a trial and obtaining clarification on the procedure for the fairness
hearing, the district court judge originally assigned to the case
announced to the parties that he was retiring and that the case
would be reassigned. Following the reassignment, the replacement
judge convened a status conference where he stated that he
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“certainly [was] not going to take the same position [on the fairness
hearing] that [the retired judge] did” because he thought “that the
corporation can try [to] fix [the 2005 Waiver issues].” He thereafter
invited the parties to file motions for summary judgment.
¶15 Cookietree and Schenk filed such a motion, arguing that
the December 18, 2009 and January 6, 2010 corporate actions “cured”
any defect in the 2005 Waivers. McLaughlin opposed the motion,
arguing that “‘fairness’ by its nature is a fact-intensive inquiry,”
making summary judgment improper. He also argued that the
retired judge’s denial of Cookietree and Schenk’s Cross Motion for
Summary Judgment was the law of the case and that, under the
mandate rule, the district court and the parties were bound by this
court’s remand directive.
¶16 The replacement judge ruled that the post-remand
corporate action “completely resolve[d] any issue concerning the
conflict of interest that was found to have tainted the [2005
W]aivers.” He therefore granted summary judgment in favor of
Cookietree and Schenk. McLaughlin appealed.
¶17 On May 11, 2010, the Legislature amended section 16-
10a-622 of the Utah Code in response to our opinion in McLaughlin
I. That section now states that “[a] shareholder of a corporation,
when acting solely in the capacity of a shareholder, has no fiduciary
duty or other similar duty to any other shareholder of the corpora-
tion, including not having a duty of care, loyalty, or utmost good
faith. This Subsection . . . applies to . . . a closely-held corporation.”
UTAH CODE § 16-10a-622(3). Legislative history indicates that the
purpose of this amendment was to reverse a portion of our decision
in McLaughlin I. Specifically, in advocating for passage of the bill, its
sponsor described McLaughlin I as a “troubling decision” holding
that “shareholders of a closely-held corporation have a fiduciary
duty to the other shareholders of the corporation.” Senate Business
& Labor Committee Hearing, S.B. 197, 58th Leg., Gen. Sess. (Feb. 16,
2010) (statement of Sen. Liljenquist).
¶18 We have jurisdiction pursuant to Utah Code section 78A-
3-102(3)(j).
STANDARD OF REVIEW
¶19 “The application of the law of the case doctrine is
ordinarily reviewed under an abuse of discretion standard.” M.F.K.
v. S.V. (In re Adoption of A.F.K.), 2009 UT App 198, ¶ 15, 216 P.3d 980(alternations omitted) (internal quotation marks omitted). “How-
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Opinion of the Court
ever, when a legal question is presented to an appellate court in law-
of-the-case packaging, the abuse of discretion standard must yield
to the correctness standard of review.” Id. (alteration omitted)
(citation omitted) (internal quotation marks omitted). Although
McLaughlin argues that the standard of review in this case is
correctness, we see no legal question presented in law of the case
packaging. The issue is simply whether the replacement judge
violated the law of the case doctrine when he ruled differently than
the retired judge on an issue previously decided. Therefore, we
apply the abuse of discretion standard to this issue.
¶20 Whether a district court complied with the mandate of an
appellate court is a question of law, which we review for correctness.
See Amax Magnesium Corp. v. State Tax Comm’n, 874 P.2d 840, 842
(Utah 1994); Slattery v. Covey & Co., 909 P.2d 925, 927 (Utah Ct. App.
1995). Similarly, we review a district court’s grant of summary
judgment for correctness, with “the facts and all reasonable infer-
ences [reviewed] in the light most favorable to the nonmoving
party.” McLaughlin I, 2009 UT 64, ¶ 14 (internal quotation marks
omitted).
ANALYSIS
I. THE REPLACEMENT JUDGE’S RECONSIDERATION
OF THE RETIRED JUDGE’S RULING WAS PROPER
BECAUSE THE RETIRED JUDGE’S RULING WAS
NOT THE LAW OF THE CASE
¶21 McLaughlin argues that the retired judge’s order of a
fairness hearing was the law of the case and that the replacement
judge should not have reconsidered the issue. Cookietree and
Schenk argue that the replacement judge was not bound to follow
the prior order. We hold that the retiring judge’s ruling, in which he
ordered a fairness hearing, did not fall within the law of the case
doctrine. The replacement judge therefore was free to reconsider the
issue.
¶22 Under the law of the case doctrine, “a court [may] decline
to revisit issues within the same case once the court has ruled on
them.” IHC Health Servs., Inc. v. D & K Mgmt., 2008 UT 73, ¶ 26, 196
P.3d 588. However, this doctrine is generally discretionary, with
three exceptions for extraordinary circumstances in which reconsid-
eration is mandatory.
Law of the case does not prohibit a district court judge
from revisiting a previously decided issue during the
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course of a case, regardless of whether the judge has
changed or remained the same throughout the pro-
ceedings. Rather, the doctrine allows a court to decline
to revisit issues within the same case once the court
has ruled on them.
Mid-Am. Pipeline Co. v. Four-Four, Inc., 2009 UT 43, ¶ 11, 216 P.3d 352(internal quotation marks omitted). “While a case remains pending
before the district court prior to any appeal, the parties are bound by
the court’s prior decision, but the court remains free to reconsider
that decision. It may do so sua sponte or at the suggestion of one of
the parties.” IHC Health Servs., 2008 UT 73, ¶ 27 (footnote omitted).
¶23 This rule correctly tracks rule 54(b) of the Utah Rules of
Civil Procedure, which states that “any order or other form of
decision, however designated, that adjudicates fewer than all the
claims . . . is subject to revision at any time before the entry of
judgment adjudicating all the claims and the rights and liabilities of
all the parties.” Therefore, in this case, the replacement judge was
free to reconsider the fairness hearing issue that had been previously
ruled upon by the retired judge.
¶24 McLaughlin correctly points out that there are exceptions
to the law of the case. In these situations, a judge is required to
reassess a prior ruling. These situations are “(1) when there has been
an intervening change of authority; (2) when new evidence has
become available; or (3) when the court is convinced that its prior
decision was clearly erroneous and would work a manifest injus-
tice.” Mid-Am. Pipeline, 2009 UT 43, ¶ 14 (internal quotation marks
omitted). “While there are exceptions to the doctrine of law of the
case, these exceptions function only to dictate when the district court
has no discretion but rather must reconsider a previously decided,
unappealed issue.” Id. The exceptions do not operate to bar a
replacement judge from reconsidering an issue previously ruled on
by a prior judge in the same case. We therefore hold that the
replacement judge did not abuse his discretion when he decided to
re-visit the retired judge’s decision ordering a fairness hearing.
II. ALTHOUGH THE HOLDING OF McLAUGHLIN I
THAT SHAREHOLDERS IN CLOSELY HELD
CORPORATIONS OWE EACH OTHER FIDUCIARY
DUTIES HAS BEEN SUPERSEDED BY STATUTE, THE
STATUTE IS NOT DISPOSITIVE IN THIS CASE BECAUSE
IT IS NOT RETROACTIVE
¶25 McLaughlin I concluded that shareholders in closely-held
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Opinion of the Court
corporations owe each other a heightened duty of “utmost good
faith and loyalty.” McLaughlin v. Schenk, 2009 UT 64, ¶¶ 18, 20, 220
P.3d 146. In response to McLaughlin I, the Legislature amended
section 16-10a-622 to state that “[a] shareholder of a corporation,
when acting solely in the capacity of a shareholder, has no fiduciary
duty or other similar duty to any other shareholder of the corpora-
tion, including not having a duty of care, loyalty, or utmost good
faith. This Subsection . . . applies to . . . a closely-held corporation.”
UTAH CODE § 16-10a-622(3).
¶26 The bill’s sponsor described McLaughlin I as a “troubling
decision” holding that “shareholders of a closely-held corporation
have a fiduciary duty to the other shareholders of the corporation.”
Senate Business & Labor Committee Hearing, S.B. 197, 58th Leg.,
Gen. Sess. (Feb. 16, 2010) (statement of Sen. Liljenquist). He
explained that
this bill just basically clarifies that a shareholder of a
corporation, when acting solely in the capacity of a
shareholder, has no fiduciary duty. When they’re just
a shareholder, they do not have a fiduciary duty to
other shareholders, and this clarifies that the fiduciary
duties are basically held with the directors of the
company. So this, hopefully, will correct that issue in
the McLaughlin v. Schenck [sic.] case.
Id.
¶27 The plain language and legislative history of section
622(3) are clear: shareholders, whether in a public corporation or a
closely-held corporation, do not owe each other any fiduciary duties.
As Cookietree and Schenk correctly note, “[s]ection 622(3) super-
sedes the McLaughlin I court’s holding that shareholders in closely-
held corporations owe their co-shareholders fiduciary obligations.”
It is clear that the McLaughlin I holding regarding shareholder
fiduciary duties is superseded by statute. But, section 622(3) does
not apply to the facts at issue here since they transpired prior to its
passage.
¶28 As a general rule, statutes are not retroactive without
clear evidence to the contrary. Warne v. Warne, 2012 UT 13, ¶ 25, 275
P.3d 238; see also UTAH CODE § 68-3-3 (“A provision of the Utah
Code is not retroactive, unless the provision is expressly declared to
be retroactive.”). Because section 622(3) is silent as to retroactivity,
it does not apply retroactively. And because the stock purchase, the
2005 Waivers, and the 2009 Ratifications all occurred prior to the
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passage of the amendment, section 622(3) does not apply and is not
dispositive here.
III. THE DISTRICT COURT DID NOT VIOLATE OUR MAN-
DATE IN McLAUGHLIN I BY DECLINING TO
HOLD A FAIRNESS HEARING BECAUSE NOTHING
IN OUR OPINION PRECLUDED THE CORPORATION
FROM TAKING POST-REMAND ACTION
¶29 The replacement judge granted summary judgment in
favor of Schenk and Cookietree after concluding that the post-
remand corporate action resolved any issue concerning the conflict
of interest that had tainted the 2005 Waivers. McLaughlin argues
that decision was erroneous under the mandate rule. He specifically
argues that the district court was in error when it considered actions
taken by the corporation after remand instead of holding a fairness
hearing. Cookietree and Schenk argue that our remand instruction
in McLaughlin I did not preclude the district court from taking a
course of action other than a fairness hearing and in fact “specifically
authorized . . . disinterested directors’ or shareholders’ action as a
means of resolving the conflict of interest that tainted the 2005
Waivers.” We agree with Cookietree and Schenk.
¶30 There was nothing in our McLaughlin I opinion forbid-
ding Cookietree from attempting to remedy the defects in the 2005
Waivers using procedures available under then-applicable law and
its corporate governance documents. The disinterested Board and
the disinterested shareholders were therefore free to act, and if they
were successful in ratifying the 2005 Waivers, then our order for a
fairness hearing would necessarily be moot. Thus, the district court
did not violate our remand order when it considered the validity of
other avenues for resolving the nontransaction conflict of interest
created by the 2005 Waivers. We therefore address the post-remand
corporate action below.
IV. SUMMARY JUDGMENT WAS PROPER BECAUSE
THE 2009 RATIFICATION BY THE BOARD MOOTED
THE NEED FOR A FAIRNESS HEARING
¶31 McLaughlin argues that summary judgment was
improper. Specifically, he argues that the post-remand actions by
the Board and shareholders could not be effective as a matter of law
because there remained disputed issues of fact as to the adequacy
and fairness of the information provided to the disinterested
director. We agree with Cookietree and hold that the 2009 Ratifica-
tion by the Board of Directors resolved any conflict of interest
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Opinion of the Court
problem, rendering summary judgment appropriate.
¶32 Following our remand in 2009, Cookietree’s three
directors, Greg Schenk, Harold Rosemann, and David Rudd, met to
attempt to ratify the 2005 Waivers. “Prior to the meeting, David
Rudd analyzed and reviewed documentation containing all of the
material facts concerning the [s]tock [s]ale and the 2005 Waivers,
including, but not limited to, the 2005 Waivers themselves, the 1991
Shareholders’ Agreement, Cookietree’s financial statements and
other financial information, and the McLaughlin decision.” Schenk
and Rosemann abstained from voting due to conflicts of interest.
Rudd alone then voted to ratify the 2005 Waivers and to presently
waive the stock transfer provision of the 1991 Shareholder Agree-
ment.
¶33 Cookietree and Schenk are correct that such a vote is
allowable under sections 850–853 of the Corporation Act, which
specifies the requirement for quorums and directors’ actions. These
sections of the Corporation Act expressly contemplate that there
may be situations where corporate directors have conflicts of interest
and specifies mechanisms for handling such circumstances.1
¶34 Under section 851, “[a] director’s conflicting interest
transaction may not be enjoined, be set aside, or give rise to an
award of damages or other sanctions . . . solely because the
director . . . has an interest in the transaction, if: directors’ action
respecting the transaction was at any time taken in compliance with
[s]ection 16-10a-852.” UTAH CODE § 16-10a-851(2)(a). Under section
852, “a quorum for purposes of action that complies with this
section” is a “majority of the qualified directors on the board of
directors,” and directors’ action is taken if there is the affirmative
vote of the majority of those qualified directors. Id. § 16-10a-852(1)-
(3). Section 850 defines a “qualified director” as
any director who does not have either a conflicting
interest respecting the transaction, or a familial,
financial, professional, or employment relationship
with a second director who does have a conflicting
interest respecting the transaction, which relationship
would, in the circumstances, reasonably be expected
1
In McLaughlin I, we held that, as a matter of law, the provisions
in the Corporation Act addressing conflicting interest transactions
also extend to nontransaction conflicts of interest, like the one at
issue here. McLaughlin v. Schenk, 2009 UT 64, ¶ 37, 220 P.3d 146.
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to exert an influence on the first director’s judgment
when voting on the transaction.
Id. § 16-10a-850(3).
¶35 In this case, the parties agree that the only qualified
director on Cookietree’s Board was Rudd. Thus, Schenk and
Cookietree assert that Rudd’s vote to waive the stock transfer
provisions was sufficient.
¶36 In response, McLaughlin argues that since three board
members were present at the meeting and two were disqualified, it
was impossible to have a majority because “[o]ne of three is not a
majority.” While McLaughlin is certainly correct that one of three is
not a majority, the Corporation Act does not require a majority vote
of all directors present. It requires only a quorum, which it specifi-
cally defines as a majority vote of all “qualified directors.” Id. § 16-
10a-852(3).
¶37 McLaughlin makes much of the fact that Cookietree’s
Bylaws state that “the act of the majority of the directors present . . .
shall . . . be the act of the Board.” He argues that because only Rudd
voted to ratify the 2005 Waiver when there were three directors
present, there was no majority. But this provision of the Bylaws
simply restates the more general provision of the Corporation Act
relating to quorums and voting. See Id. § 16-10a-824(3) (stating that
“the affirmative vote of a majority of directors present is the act of
the board of directors.”) Thus, it is not this section, but rather section
852, which provides the more specific requirements related to
conflicted situations. Thus, when dealing with conflicts of interest,
it is section 852 that fills in any potential gaps in a corporation’s
articles and bylaws.
¶38 Under the circumstances presented here, the only
qualified director was Rudd. As the sole disinterested director,
Rudd’s vote in favor of the 2009 Ratification constituted a majority
of the “qualified” directors entitled to vote. In fact, section 852
clearly provides that “[d]irectors’ action that otherwise complies
with this section is not affected by the presence or vote of a director
who is not a qualified director.” Id. § 16-10a-852(3). Here, the only
qualified board member ratified the transfers. And under section
851(2) of the Utah Code, once director action is taken to ratify a
conflicted transaction or “nontransaction,” it “may not be enjoined,
be set aside, or give rise to an award of damages or other sanctions”
as a matter of law.
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Opinion of the Court
¶39 McLaughlin makes much of the “adequacy of the
disclosures made to” Rudd. He argues that
Mr. Rudd did not know and still does not know
material pieces of information which would allow him
to evaluate the circumstances and fairness of the
disputed stock transfer. For example, he does not
know what consideration was paid for the disputed
shares in 1999 or whether the provisions of the Share-
holders Agreement setting forth how shares were to be
valued were followed in 1999. He does not know how
many shares Sam and Kim McLaughlin . . . would
have been able to acquire in 1999, had they been given
the opportunity or the value of those shares in 2010
compared to 1999. . . . He has never talked to Anna
Schenk, the seller of 545,200 shares. He has never
talked to Sam McLaughlin, the shareholder who
challenged the transaction. He has never talked to
Greg Schenk, the buyer, about the transaction. . . .
There was no counter-opinion contained in the Disclo-
sure Statement [provided to shareholders]. The
document was drafted by litigation counsel and
therefore subject to a reasonable inference that it was
advocacy, not information. The Disclosure Statement
was single spaced, rambling[,] and confusing to read.
¶40 McLaughlin’s alleged factual disputes about Rudd’s
knowledge regarding the stock transfers are legally irrelevant. There
is nothing in the Corporation Act or the Bylaws requiring that
qualified directors have a perfect knowledge as to all matters on
which they cast a vote. The only requirement is that they be
disinterested and that the conflicted director disclose “the existence
and nature of the conflicting interest . . . and all facts known to the
director respecting the subject matter of the transaction that an
ordinarily prudent person would reasonably believe to be material
to a judgment about whether or not to proceed with the transaction.”
Id. §§ 16-10a-850(4), 16-10a-852(3). And McLaughlin does not even
attempt to argue that Rudd was conflicted.
¶41 The 2009 Ratification resolved any conflict of interest
problem with the transfer of shares to Schenk. Summary judgment
was therefore proper.
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V. BECAUSE THE 2009 RATIFICATION BY THE BOARD
DISPOSES OF THE CASE, WE DECLINE TO ADDRESS
THE 2010 SHAREHOLDER VOTE
¶42 Because the 2009 Ratification by the Board mooted the
need for a fairness hearing and completely resolved any conflict of
interest problem, questions regarding the validity of the 2010
shareholder vote are moot. We therefore decline to address them.
CONCLUSION
¶43 We hold that the district court did not violate the law of
the case doctrine. Under that doctrine, it remained free to reconsider
an issue it had previously decided. We additionally hold that the
district court did not violate our mandate in McLaughlin I. There
was nothing in McLaughlin I to prohibit the corporation from taking
post-remand action. Although the holding in McLaughlin I relating
to shareholder fiduciary duties has been superseded by statute,
because the statute is not retroactive, it is not dispositive in this case.
The 2009 Ratification by the Board of Directors mooted the need for
a fairness hearing by completely resolving any conflict of interest
problem. We therefore affirm the summary judgment entered by the
district court.
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